CLIMATE SPECTATOR: One path to rescue the car industry

Instead of reaching for bailouts, the local car industry must adopt a new standard of low-emitting, fuel-efficient vehicles if it is to become globally competitive.

The Australian government has been bailing out automotive manufacturers since 1985. Both that year’s Button Plan and the 2008 Bracks Report recommended restructure and additional funding. But unless the Australian industry accepts the reality of today’s automotive market, bailouts will make little difference and we’ll continue to see closures and job losses.

The global market shift to low-emitting, fuel-efficient vehicles is going to make it difficult for the local car industry – which produces predominantly large, high-emitting vehicles – to compete internationally. Not surprisingly, the Middle East is currently Australia’s main export market, given its demand for large vehicles (but we face growing competition there from the US). Emission standards mean Europe and parts of Asia no longer want our cars.

Declining global exports mean the Australian car industry is dependent on sales to the government and business sector for its future. In 2007, nearly 56 per cent of Australian-made vehicles were sold to the business sector, and 19 per cent to all tiers of government. With the lowering of tariffs and rising oil prices, consumer preference has shifted to either small fuel efficient vehicles or from the large passenger vehicles to sports utility vehicles. In effect, sales of Australian-made vehicles fell from 85 per cent in 1986 to 14.1 per cent in 2010.

So you might think it’s a positive that government is proposing to mandate vehicle CO2 emission standards for all new light vehicles from 2015. According to the government, these standards will "represent the single most important measure with the potential to deliver the largest reductions in transport emissions.” Surely lower-emitting vehicles will mean better sales overseas and at home.

The emission standards will apply to all new vehicles sold in the country. Effectively this will discourage new car importers dumping their high emitting vehicles into Australia, and reduce the uptake and popularity of high-emitting SUVs.

But if the Australian government comes to the aid of the local car industry, it is likely these standards will be deferred, compromised or both.

The National Transport Commission reported that in 2010, Australian-made vehicles had higher emissions than the country’s emission standards. They averaged 247g/km compared to the nation’s average of 212g/km. It is questionable whether the industry can significantly reduce its emissions; on average, Australian-made vehicles reduced their emissions by only 4.7 per cent from 2009.

Submissions to the government’s paper closed in December 2011. The Australian Conservation Foundation proposed that the mandatory emission targets ought to be similar to the EU’s: 130g of CO2/km by 2015 and 95g of CO2/km by 2020. The Federal Chamber of Automotive Industries proposed lenient targets of 195g of CO2 in 2015 and 176g of CO2 in 2020. In 2010, the EU achieved emission standards of 146 g/km: 44 per cent less than Australia’s average emissions.

The Australian government will most likely have to adopt lenient targets if it bails out the local car industry. But it is not as if the local car industry was caught unaware that it had to improve its vehicles' fuel efficiency and reduce emissions.

For instance, two sets of voluntary fuel efficiency target were set in 1978 and in 1987. At the time, both targets failed because consumers' preference was for bigger cars.

In 2003 a third target was set at 6.8L/100 kilometres by 2010. Holden and Ford failed to make significant cuts to CO2 emissions. The NTC reported that in Jan-Aug 2009, Holden had the highest average emissions – 279 g/km – with virtually no improvements since 2005. In 2010 the NTC reported that Holden had improved its average emissions to 260 g/km, still well above the country average of 212 g/km and above average emissions from Australian-made cars (247 g/km).

It is unlikely that Holden would be able to meet the EU mandatory targets; it makes sense that they would be arguing for lenient targets. The Australian government will be pressured to set lenient mandatory emission targets if it is proposing $100 million aid to Holden and $35 million aid to Ford.

Simply throwing money at the local car industry will not necessarily increase sales and save jobs. Funding should not be supported if the local car industry fails to make the necessary technological changes to significantly reduce emissions of its large vehicles to meet the government’s proposed targets. The industry must also introduce new fuel-efficient vehicles that consumers would rather buy.

Without these changes, the industry will no longer be sustainable: government and business fleet buyers will be reluctant to buy and support Australian-made vehicles that fail to satisfy the mandatory CO2 emission standards.

Mandatory emission standards should not be comprised in order to save the local car industry. Lenient mandatory emission standards will allow the continuation of high-emitting vehicles being imported and sold in the country and Australia will fail to reduce its road transport emissions.

Anna Mortimore is a lecturer at Griffith Business School, Griffith University

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